Personal tax and employment
Generally, when subcontracting to a foreign contractor, personal tax liabilities will be their responsibility and are separate to your company. Depending on the wording and length of the contract, the contractor may be seen to be deemed employee, in which case you are responsible for calculating and paying their tax at source – this becomes far more complicated, as you would need to then pay them a wage in-line with their country’s tax laws.Simple VAT
If you are subcontracting within the EU then you need to record the subcontractor’s VAT registration number (if they are registered) on their invoice. Although the VAT is defunct and cancels itself out, it still needs to be recorded on the invoice for regulatory purposes.
However, if you are outsourcing to someone outside the EU, you do not need to record their VAT registration number regardless of whether they are registered or not.
When subcontracting out, it’s a good rule of thumb to consider whether you’ll be losing money on the VAT Flat Rate scheme, which allows you to charge 20% VAT from a client and pay a lower amount depending on your sector, pocketing the difference.
You’re unable to reclaim input tax (VAT) on any of the services or expenses which a subcontractor has personally paid for or provided, so sometimes it may not be worthwhile subcontracting in the first place!